YetiZen CEO teaches “How to avoid the nude beach pitch”
July 4, 2012
Utilizing the brain’s propensity for nexting
Investors are always predicting success. Their livelihoods depend on it. While the success of investors as group at being able to do this well is a question that divides experienced entrepreneurs into two passionate and opposing camps (often based on their own history with specific investors) for a minute lets focus on what we mean by prediction for a second.
If by prediction we mean conscious reflection of each and every point to forecast a future than the word predict is adequate. In our age of information overload it is absolutely impossible to consciously reflect on all the information that comes at us. We therefore use a less cognitively taxing mechanism for forecasting called nexting. We are nexting when our brains act as if a certain future is imminent without conscious awareness and reflection of what might happen. We next about lots of things in life—we next if we place our hand on a hot stove it will burn. If we smell a rose we next there will be a rose fragrance.
I would argue that when listening to multiple initial pitches investors are not predicting success but are nexting. They may be nexting based on a sophisticated set of prior experiences or a paradigm established by a series of prior experiences (which involved conscious prediction) but in the moment they are listening to your pitch they are nexting.
In general most investors are nexting based on the following pieces of information in order from most to least salient:
- social proof and authority/credibility—of you, your team, your advisors, investors, and allies
- recent experiences with same or similar companies[3]
- what they know about other similar companies
- how they think about strategy
Instead of focusing your pitch on the product which is 97% of all pitches I hear (not counting the entrepreneurs I have trained) ensure your pitch is customized to reflecting pieces of information that allow investors to next on enough of the above to mentally stay with you before you begin talking about your secret sauce. By the way nexting is done by the limbic system and not the neocortex so keep in mind if you do not address enough of the above your pitch message may never get to the neocortex, which is where the truly great startups shine.
Recognize the limitations of short-term memory
Hopefully by this point of reading this essay you are teaming with ideas and are ready to go completely go and reconstruct your pitch. Hold on for a second, I saved the best and most critical piece of information for last.
Once your pitch has passed through the reptilian and limbic systems of the brain, it makes it to the neocortex.[4] Immediate processing in the neocortex involves use of short term memory, where information is stored in active form so it can readily be available for processing for a short period of time. Short-term memory is limited. A commonly cited capacity in psychology is 7 +-2 (Miller’s law).
This means that if your audience of investors is in their best possible state they can comfortable store 9 pieces of information. If they are tired and fatigued they can store for immediate processing 5 new pieces of information.[5] Unless you are their first pitch of the day and week, which state do you think your investors will be in? Probably the one in which they can only hold 5 pieces of information.
So make sure those 5 pieces are the ones that adequately feed your reptilian brain’s desire for big picture and novel, your limbic system’s desire for easy nexting and your neocortex’s desire for intense processing. Sounds easy? It isn’t.
The key after this point is repeated iteration with an audience of peers and mentors. At YetiZen this iteration period is 12 weeks of 4 hour sessions with me (even with serial entrepreneurs). I have been told by investors and entrepreneurs that the difference in these pitches from beginning of program to end of program is as big as night and day.
I look forward to hearing your pitch someday.
Footnotes:
[1] in this essay I will assume your primary audience is investors. While many of these findings equally apply to business development those conversations are less binary (you get a deal or you don’t) in their earlier phases and tend to involve more consultative selling and evangelism. A future essay may deal more directly with business development for gaming startups.
[2] as you know it is rare that you get an investment in your first pitch. You generally have to pitch once to gain curiosity and interest for a second follow-up meeting. Depending on the size of fund this second meeting may be with general partners, the ultimate decision makers or another level of scouts/venture partners before a third meeting that is with the general partners. The next step is the due diligence process. Depending on the investor’s fit with your type of business and the hotness of your opportunity some processes will go a lot faster but as a rule there is always at least one meeting followed by calls/email/in person due diligence before a term sheet comes your way. This essay is written keeping the curiosity and interest generating pitch in mind only.
[3] here I am talking about their understanding of what they view as similar which might be very different from yours. Here is a personal example to illustrate: as you know from the last essay to me a game factory business versus a game franchise business are two fundamentally different types of businesses. Unsophisticated gaming investors (often referred to internally at YetiZen as dumb money) do not understand the difference and therefore think of all gaming businesses as hits based businesses, hence the term “dumb money”. By the way we tell all our gaming startups to cut conversations with such investors if they have other options on the table. “Dumb money’s” learning process will be too long and painful for you to get an investment and if you get it to manage them after investment. We are also very open with our entrepreneurs on which investors fit in what camp.
[4] process is described this way for simplicity in explanation so for all the neuroscientists and biology majors out there please do not comment saying they work simultaneously, I know!
[5] In practice prefer erring on an even more conservative side—that investors are probably only able to store 3 new pieces of information.
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